The active hedging product saw AUM treble from $4 billion to $12 billion – partly because Record signed up “two large US state pension funds totalling $ 8.1 billion”. You have to wonder if either or both of them start with a ‘Cal...’ (CalPers and CalSTERs: Stripe me up!)
The AUM in the absolute return product fell from $13.4 billion to $7.7 billion.
Neil Record, the company’s chairman and CEO, details the company’s investment policy in the profit statement: “We recognise and exploit two principal currency market characteristics (I use the term in the sense of ‘opportunities’) – the forward rate bias (or ‘carry’) and trends (or ‘momentum’). We also recognise another, less pronounced inefficiency – short-term ‘mean reversion’.”
Absolute return ‘exploits’ all three ‘characteristics’ whereas active hedging just pays attention to momentum – which explains the difference in the results of the products: the active hedging product has tended to result in positive performance over client benchmarks whereas absolute return “has seen a period of negative performance from July 2007.”
The company still has faith in its absolute return programme but will follow that time-honoured solution to underperformance: re-naming the product.